Dollar's post-election dive a 'knee-jerk reaction'

Australia’s volatile local currency is taking its cues from offshore again after diving one US cent on Monday over uncertainty about the federal election result.

Economists say US dollar strength drove the local unit down in today's morning trade, while the Australian bond market continues to strengthen, seemingly unaffected by the prospect of a hung parliament.

Three rural independents, who will play a key role in determining who’ll form the next government, are expected to meet today for the first time since Saturday’s election.

National Australia Bank chief economist Rob Henderson said there had been a ‘‘knee jerk reaction’’ on Monday, with the Australian dollar losing one US cent in early trade.

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‘‘Since then it’s rallied all the way back and passed the point where it closed in New York on Friday night and now it’s come back again, so it’s pretty volatile,’’ he said. ‘‘I think that knee jerk reaction is all over for now.

‘‘The US dollar was a lot stronger overnight again, so I think we’re back to a US dollar story being the driver at the moment.’’

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Australian bonds strengthened overnight, thanks to a small lead from the US.

As of this morning, Labor holds 72 seats, the coalition 70, the Independents 3, the Greens one seat, with four seats still in doubt.

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Mr Henderson said Australia was in a ‘‘state of flux’’ over who would form the next government and it didn’t look like the situation would be resolved quickly.

‘‘But we know that whatever party eventually forms government, assuming one does, that they’ve got exactly the same fiscal and monetary policy approach,’’ he said.

Nomura Australia chief economist Steven Roberts said the period of negotiation was likely to extend for at least another few days, with national broadband spending set to influence the support of the independents.

‘‘Ultimately, it is worth keeping in mind that the views of the two sides - Labor on the one hand, the Liberal/National coalition on the other - are similar with regard to fiscal consolidation and the independence of the Reserve Bank,’’ Mr Roberts said in a morning note.

‘‘We do not see the eventual outcome of the election having a material impact on the economic outlook.’’

Meanwhile, ANZ economic analyst Andrew McManus said the political situation was having only a marginal effect on the local currency.

‘‘The weekend’s indecisive federal election result appears to have had little lasting impact on the AUD,’’ Mr McManus said in his morning note.

ICAP economist Adam Carr agreed that the Australian dollar had shrugged off Monday’s losses.

‘‘Nothing again today in Oz land,’’ he said in his morning note.

‘‘We’ve still no idea who will govern yet and to make matters worse our governor-general’s daughter is married to a Labor party heavyweight who some say is next in line after Gillard. Obviously untenable.’’

Ms Bryce’s daughter Chloe married the parliamentary secretary in November 2009.The governor-general is seeking advice on any potential conflict of interest in case she must decide who forms the next government.